Access to Islamic Hedge Funds - Incisive Media

al safi trust platform
executive representative to monitor
on a full-time basis the trades and
operations of the platform and each
fund manager.
Through daily exception reports
prepared by Barclays Capital, purchases
of any stocks not on the
approved list can be reversed before
these are cleared for inclusion in a
manager’s portfolio.
Selecting Shariah compliant stocks
The stock selection needs to be
automated but robust. The Shariah
screening process uses proprietary
metrics and software so fund
managers are able to choose from
an expansive universe of stocks.
The enhanced screening criteria is
stricter from a Shariah standpoint
than the present screening criteria
used by well-known Islamic indices.
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Nevertheless, it allows managers to
choose from a large universe and
can be added to.
The screening process is designed
to weed out “unacceptable” companies.
It has been designed to accommodate
screening criteria developed
by Shariah boards before electronic
reporting and before the EDGAR
database (electronic data gathering,
analysis and retrieval of SEC filings)
established by the US Securities
and Exchange Commission in
the late 1990s.
Shariah boards that have approved
and supervise the Dow Jones Islamic
Market Indexes, the FTSE Islamic
Indexes, the MSCI Barra Islamic
Indexes, the Standard & Poor’s
Islamic Indexes, and others, believe
the screening criteria developed for
the Al Safi Trust are superior to all
others. This is because the screening
method used by the indices often
throws out good companies as well
as bad. The board thinks it is only
a matter of time before the Al Safi
Trust criteria are adopted as the
industry standard.
The refined screens developed for
Al Safi hedge funds focus directly
on what is prohibited. Other
screens focused indirectly on these
elements. The well-known screens
begin by considering a company’s
primary business and then by scrutinising
its financials.
The first of the financial items to
be considered is usually corporate
debt. This indicates interest and the
more debt, the more interest paid.
Islamic indices measure corporate
debt in two ways. One divides
total assets by total debt. The other
divides market capitalisation by
total debt.
According to the Shariah supervisory
boards of these indices, if
the ratio of debt/assets or the ratio
of market capitalisation/assets is
less than 33%, the stock will pass
through the screens. If it is greater,
the stock will be screened out and
declared unacceptable for Shariah
compliant investments.
The refined screens used for Al
Safi do not focus on debt. They
focus directly on what is prohibited:
interest. Debt is not prohibited by
Shariah rules. What is prohibited is
the by-product of modern, conventional
debt, which is interest.
This results in a more refined
screen that is more exacting for
companies to pass. Using advanced
software and data feeds, fund managers
on the platform have access
to 45,000 stocks that are traded
on exchanges around the world,
of which more than two thirds are
Shariah compliant.
Hands-on scholarly input
In addition to the screening software,
the platform uses a process
involving its Shariah board in the
vetting of stocks for possible inclusion
in the portfolios of the platform’s
hedge fund managers.
The Shariah advisor may be
asked by fund managers about any
stock that has been rejected. While
hedge fund managers have access
to the results of screening software,
they can also ask the opinion
of the Shariah advisor whenever
they encounter a stock where there
may be questions. For example, the
manager may have direct access
to information about a company’s
plans to restructure debt within a
certain period of time, or to liquidate
a business that disqualifies it
from inclusion, or to merge with a
larger company and become compliant.
This information could affect
whether or not a company meets
Shariah standards. n
renowned scholars form al safi shariah supervisory board
Shariah Capital draws on the top
tiers of internationally recognised
Shariah scholars to form separate
Shariah boards for each of its
projects. This means Shariah scholars
work on projects best suited to the
particular areas of their expertise.
This process, says Shariah Capital,
ensures the right scholars develop,
certify and supervise the financial
products and services endorsed by
the company.
The scholars on the Al Safi Shariah
supervisory baord is made up of
leading scholars in Islamic finance
drawn from Bahrain, Malaysia, the
US and UAE.
Sheikh Nizam Yaquby (Bahrain),
chairman
Sheikh Nizam Yaquby has an
advanced degree in Economics
and Comparative Religion from
McGill University and has authored
numerous fatwa related to innovative
Shariah-compliant financial products.
Sheikh Nizam is internationally
known as one of the leading scholars
of modern Islamic finance.
He serves on the Shariah
supervisory boards of over 40
financial institutions worldwide,
including several key memberships on
the boards of the Dow Jones Islamic
Market Indexes and the Auditing and
Accounting Organization of Islamic
Financial Institutions (AAOIFI).
Sheikh Nizam is an advisor to
a number of banks and financial
institutions including National
Bank of Abu Dhabi, Investcorp,
Gulf Finance House, Citi Islamic
Investment Bank, Royal Bank of
Canada, Islamic Bank of Britain
and European Islamic Investment
Bank. He is frequently called upon
to consult with governmental and
regulatory authorities on issues
related to Islamic finance
Having taught tafsir, hadith and
fiqh in Bahrain since 1976, Sheikh
Nizam contributes original research
on many aspects of modern Islamic
finance and is the author of several
articles and publications published
in English and Arabic. He recently
participated in the development and
certification of several international
sukuk issues.
Dr Mohd Daud Bakar (Malaysia)
Dr Mohd Daud Bakar is the
president/CEO of the International
Institute of Islamic Finance and
Amanie Business Solutions, a
consulting company. He is also the
chairman of the central Shariah
advisory council of the Central
Bank of Malaysia and a member of
the Shariah advisory council of the
Malaysian Securities and Exchange
Commission. He is considered
the leading authority on Islamic
legal theory and Islamic finance in
Malaysia.
A former associate professor
in Islamic law and deputy rector,
student affairs and disciplines, at
the International Islamic University
Malaysia, his areas of specialisation
include Islamic legal theory, Islamic
banking and finance and Islamic law
of zakat.
Dr Daud is a member of a number
of international Shariah supervisory
boards including the Dow Jones
Islamic Market Indexes, HSBC
(Malaysia), Unicorn Investment
Bank (Bahrain), BNP Paribas, Oasis
Asset Management, the Japan Bank
for International Co-operation, the
Shariah board of AAOIFI and others.
Dr Mohammad Abdul Rahim
Sultan Al Olama (UAE)
Dr Mohammad Abdul Rahim Sultan
Al Olama is a member of the faculty
of Shariah at UAE University and
a member of the fatwa committee
at the department of religious
and charitable affairs in Dubai. In
addition, he is a member of the board
of AAOIFI and serves as a member
of the Shariah boards of Mawarid
Finance, Manazel Real Estate, Al
Mada’in Finance and others.
Dr Mohammad has written
extensively on modern Islamic
finance and has presented numerous
research papers at industry
conferences. He holds a PhD in
Islamic law from Umm Al Qurra
University in Mecca, Saudi Arabia.
Shaykh Yusuf Talal DeLorenzo
(US), non-voting executive
representative
Shaykh Yusuf Talal DeLorenzo, the
chief Shariah officer at Shariah
Capital, is a scholar of Islamic
transactional law. He is the author
of Compendium of Legal Opinions
on the Operations of Islamic Banks,
the first English/Arabic reference
on the fatwas issued by Shariah
boards. Shaykh Yusuf also wrote the
introduction to Islamic Bonds, the
2003 book that introduced sukuk.
His work has appeared in academic
and industry journals and as chapters
in books.
Shaykh Yusuf was a special
consultant to the Asian Development
Bank and the Islamic Development
Bank on their joint project for the
Islamic Financial Services Board. He is
a member of the Council of Scholars,
ISRA, Central Bank of Malaysia and
a member of the governing council
of the International Centre for
Education in Islamic Finance (INCEIF)
in Malaysia. Recently, Shaykh Yusuf
was appointed a member of AAOIFI’s
Shariah board.
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November 2008 | Access to Islamic Hedge Funds Supplement |